All indications point to the imminent release of iOS 4.3, if not this week, then certainly by next week. As always with new releases, a host of new features will be included, not just for users, but also for developers.

The rumour is that 4.3 will introduce subscription pricing options to the app store. This is in response to newspaper and magazine publishers looking for better pricing options for daily, weekly and/or monthly editions. But, who says subscriptions need to be limited to publications. Apple's Terms of Services don't. More on that in a bit.

One of the challenges of iOS development is earning enough revenue to make a living. It's been said that there are two app stores, App Store A, where you sell apps with mass market appeal, hoping to generate a lot of revenue in a very short time, and App Store B where you sell apps that target a narrower audience, aiming to generate a steady revenue stream for years.

App Store A is often compared to buying a lottery ticket, and has just recently made an appearance in Dilbert.

App Store B is considered to be the more attainable, long term success strategy. Since you're aiming at a narrower target market, it helps to be able to generate recurring revenue from your users.

I've long wanted to try charging a monthly or yearly fee to use an app, something that will support the development process after the initial sale. Every other software platform allows you to charge for upgrades in order to generate some recurring revenue from your installed user base. A few apps on the App Store have phased out the original version and released a new version, with a new charge. There a few problems with this approach, a) users who buy the app just before the switch, kind of get screwed, b) there's no easy way for a user to transfer their data from version 1 to version 2 (it can be done, but you have to build in a solution, unlike normal app upgrades), c) not all users of version 1 will even know version 2 is available.

Another option is to add new features and charge for them though in-app purchases, then a user can decide if the new features are worth the extra money to them, if not, no harm, they keep using the app as they bought it.

Back to the new subscription option. With subscription pricing there will be a new opportunity to generate recurring revenue from your user base. And to the user, it will be a well defined, easily understood method. $x per time period. Just like paying your monthly phone bill, or a yearly magazine subscription. You can cancel at any time, or keep paying and take advantage of all new features as they're released. For developers, you now have recurring revenue. Earnings to enable you to continue to maintain and support the app, while still feeding your kids.

There's no indication yet what the options will be from Apple, but it's a good guess that the same pricing tiers we're using now will apply, and that you'll be able to select from a variety of time periods, likely: weekly, bi-weekly, monthly, quarterly, yearly. As an example, you'll be able to charge $0.99 a quarter, instead of a one time fee of $2.99. If the user doesn't like your app, they save money. If they like the app, and continue to use it, you'll break even after 3 quarters, and earn more for the entire length of time the user uses your app.

The largest obstacle I foresee moving to this model will be the blow back from customers. The current app ecosystem has bred a sense of entitlement where users (not all, but a lot), feel they deserve an app, all future updates, full support etc, all for the low cost of $0.99. For most developers, and most apps, this isn't sustainable. Using a subscription will help solve this. As more of us developers begin to use this model, customers will begin to accept it and most likely actually prefer it, since they'll know exactly what they're getting and for how much, and their apps will constantly improve at no additional cost. And, all things considered, they'll still be getting their apps at a ridiculously low price.

Update: Apple officially released the information on subscriptions today. Subscription term lengths are: weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly. Thanks Apple for giving developers more opportunity to become profitable!

iOS 4.3 is currently available as a beta and thus is under an NDA. Nothing I discuss here is covered under the NDA to my knowledge as there's been no official word about subscriptions other than the now public iTunes Terms and Conditions. If you feel I have disclosed something in the NDA, please let me know and I'll edit the post accordingly.

Everybody else seems to have a blog, so I suppose Cerebral Gardens ought to have one too. This will be written by me, Dave Wood, the founder and developer.

The issue that has compelled me to finally write something is the whole Tweetie upgrade pricing issue. First, I want to say that I always try to look at an issue from every side, though I'm not always successful at that. In this case it's pretty easy, since I'm both a developer and a user. Next, I'll admit that while I did buy Tweetie v1 for iPhone, I barely use it. I use Tweetdeck most of the time because of it's quick account changes. And Twitterific the rest of the time. Bought Tweetie just because it worked during the twitpocalypse. I do use Tweetie on my Mac exclusively (with the ads 'cause I like the ads, very relevant to me).

So, the issue with Tweetie v2 being a fully new version with no upgrade path is a tough one. Largely because developer’s choices are limited due to some of the restrictions imposed by the App Store. Enough people are writing about how to fix the store, so I'm going to present options that may work with the current setup of the store.

There are two main problems to deal with here (again, not counting the App Store issues). 1. Users expectations for free updates. 2. Developers needs for a sustainable business.

Regarding users expectations for free upgrades: I believe there should be an expectation for free upgrades for some length of time whenever someone buys software. That time is up for discussion. With a $1500+ Adobe Suite purchase or even Apples $69 iWork product, I believe that time period should be at least a year. With a $3 app, perhaps it should only be 30 days. Although I believe current users are expecting longer. Anyone expecting, or offering, lifetime updates is insane. That's obviously not sustainable.

But the expectations do exist; whether or not they should. Developers (myself included) need to start setting customer expectations to match our plans. Stating what the upgrade path will be in our app description for instance. Just stating something like 'free upgrades for 30 days' etc. As I type that I have to laugh. With a 14-20 day review process 30 days doesn’t seem like enough. 3 months perhaps.

John Gruber of Daring Fireball fame (whom I read religiously) compared buying a $3 app to a $3 cup of coffee. I don’t believe this is a fair comparison. The only thing they have in common is their price. A cup of coffee is a physical item, actual water, coffee beans, cream and sugar maybe, as well as a paper cup, and a plastic top. A person has to physically take your order, prepare the coffee to your taste, and hand it to you. The whole process takes a minute or so of someone’s day. If 1000 coffee’s are ordered at the same time, it takes a lot of people to serve them up in the time expected by the customer. Compare this to apps. There’s nothing physical with an app, not even a disc with iPhone apps. Once the app is made (and of course there is a cost there), it doesn’t cost much more per app ordered. It costs the developer (almost) the same to develop the app whether it ends up selling 10 copies, or 10 million copies. A closer comparison would be comparing apps to songs. We pay about $1.29 per song now. Imagine the uproar if songs were $3 each. Heck, I think $1.29 is expensive, but I pay it.

Continuing to compare to music, consumer’s expectations have been set; people buy a song or CD and they’re done. They don’t expect to get the same song again in a new format if it comes out; people joke about how many times they’ve bought the White album. They don’t expect to get an extended, or remixed version of the song for free if one comes out. The point here is that expectations of users can be set to be very low.

Perhaps this is what Atebits is starting to do. They’re reducing the expectations of their users, drastically. Possibly too fast, hence the uproar.

I've read that Atebits has said they would like to offer an upgrade path that gives current users a discount, but that it's not an option with the App Store. Here's one way it can be done. (This isn't pretty and I wouldn't recommend anyone else do this; further below is an option that could work for the rest of us, with time to plan).

Set Tweetie v1 to $999. No sane person would buy it at that price. If they do, Apple will refund it, (and hopefully not ding you the full refund price as indicated in the dev contracts). Then submit v2 as two apps, an update for v1 users, and a new app for $3 with text in the description to set the users expectations correctly. V1 users get the update they expected and also have their expectations for future updates set to nil. When v3 is ready, v1 and v2 are removed from sa le, v3 is submitted as a new app.

Regarding problem 2, the sustainable business: obviously developers have to be paid for their work, and continue to be paid for building upon that work. I’m going to assume that the incredibly low app prices aren’t going away; even if most developers raise their prices, there will always be bottom feeding app spammers (such as Brighthouse Labs) selling crap for $0.99.  So Atebit’s plan to release Tweetie v2 as a separate app actually makes sense (after setting expectations correctly).  But lets take it a step further.

I believe that we should be selling our software based on the time the user will use the app. Pick a value you want to charge per month of use, in this case, we’ll go with $1/month. Adjust these rates when/if prices in the App Store in general change. If you estimate your app has a 1 month life for the user, perhaps a game that will become boring/be completed in that time period, charge $1. If it's good for 3 months, charge $3. If the app is like Tweetie and useful for a year, charge $12. From here, we get my other possible solution (for the rest of us).

This option requires planning, so it's too late for Tweetie. If you expect a 6 month life of the app from v1 release to v2 release, price the app at $6. Each month drop the price of the app by $1. When v2 comes out, price it at $6 again. V1 goes to free, but is unsupported, or could even seize to function if that’s made clear to the user before they buy it. This is giving your users a set cost per month of usage. It’s not perfect, but much closer to what people expect, and it's a sustainable business model for us developers. I believe this will work extremely well if lots of us start using the model. This could likely be implemented via in app purchasing, by charging for each month of usage.

I’m going to stop here, without a final conclusion since I consider this just part of an ongoing discussion. I look forward to continuing to discuss these issues further and working with others in the community to solve these problems (among others) while creating successful businesses.